Calculating Social Security

Social Security was originally introduced in 1935 in the aftermath of the Great
Depression. It was intended to provide a safety net of income to retired and disabled
workers and their families. Social Security is a mandatory plan, requiring most
wage earners to contribute a percentage of their yearly income to support the
program. In return, they, their spouses and sometimes their dependents are eligible
for retirement, disability and survivorship benefits.

Today, over 95% of the people over 65 receive a Social Security benefit check.
For many this monthly benefit represents their main source of retirement income.

Contributing to the Social Security Program

Every year you work, you and your employer contribute equal amounts to Social
Security, as required by the Federal Insurance Contribution Act (FICA). 6.2%
of your earned income is withheld from your paycheck to fund Social Security.
Another 1.45% went to Medicare for a total deduction of 7.65%. Your employer
matched your contributions with an additional 7.65% of your earnings going into
the programs mentioned.

You may be pleased to know that there is an earnings level at which Social
Security payments are no longer required. No Social Security withholdings are
required on any earned income over $118,500 (in 2015); the amount contributed
to Medicare has no earnings cap, however.

Your Social Security Benefits

If you were born before 1938 you may collect full Social Security benefits
when you turn 65, or you may collect 80% of your benefit if you retire at 62.
For people born after 1938, Normal Retirement Age (NRA), or the age at which
you can receive full social security benefits, gradually increases upward from
age 65 to age 67. Visit http://www.ssa.gov
to determine your NRA. When you die, your surviving spouse is entitled to your
benefits, unless he or she would collect more based on their own earnings history.

Taxes on Social Security Benefits

Once you begin receiving retirement benefits, you may have to include them in
your taxable income reported to the IRS each year.

If your total income for the year, including half of your Social Security and
your tax-exempt earnings, is greater than $32,000 ($25,000 for single taxpayers)
you will owe federal income tax on part of your Social Security benefits. The
IRS provides you with a worksheet to figure out how much you must include in
your taxable income each year.

Record of Social Security Earnings

When you get a Social Security card, your Social Security benefit account is
open. It is not activated until you begin earning income. Once your earnings
begin, the amount you contribute each year is recorded.

The accuracy of this record is important. You can get a copy of your earnings
record from the Social Security Administration (SSA). Fill out Form 7004 and
mail it to SSA. The forms are available at your local Social Security office
or by calling 800-772-1213. If you discover your record is wrong, you can ask
that it be corrected, though you must supply evidence of errors. The SSA encourages
people to check their earnings records every three years or so, since the earlier
a problem is found, the easier it is to prove and correct.

Material discussed is meant for general illustration and/or informational purposes
only and it is not to be construed as tax, legal, or investment advice. Although
the information has been gathered from sources believed to be reliable, please
note that individual situations can vary therefore, the information should be
relied upon when coordinated with individual professional advice.

This web site may contain concepts that have legal, accounting and tax implications. It is not intended to provide legal, accounting or tax advice. You may wish to consult a competent attorney, tax advisor, or accountant.